BMW goes for pole position in fast-growing Chinese car market
Country at heart of Munich group’s expansion plans as Germans lead luxury auto race
Disco dancing assembly line robots, comedy sketches in the Dongbei dialect of Chinese — and an impassioned reading of the poem “Snow” by Mao Zedong greeted the opening of BMW’s newest factory in China.
For BMW, the launch of the plant is a big bet on the country’s fast-growing car market as it increases the group’s production capacity in China by 50 per cent to 450,000 vehicles a year.
Located in the northern city of Shenyang, BMW’s new 45,000 square metre facility cost €1bn to build and is a shining example of German high-tech manufacturing.
Workers wear exoskeletons, smart gloves and augmented reality glasses, allowing them to see inside a virtual reality engine or chat online with the plant’s artificial intelligence bot, nicknamed Xiao Bao.
It underlines how China is central to BMW’s corporate strategy and an important battleground for the leading car groups. China surpassed the US in 2009 to become the world’s largest car market.
At the luxury end of the sector, the Germans are the dominant force. More than 70 per cent of the 2.2m premium vehicles sold in China last year were German, led by Audi, BMW and Mercedes-Benz.
In the case of BMW, the country accounts for 22 per cent of its cars sold globally, according to the company, and roughly 28 per cent of pre-tax income, says Evercore in London.
The carmaker hopes its strategy in China will help it reclaim the global sales crown in the premium market, won by Daimler-owned Mercedes-Benz last year.
It also has its sights on Audi, the luxury unit of Volkswagen, which has been the sales leader in China since 1988.
BMW’s performance in China so far this year is promising, with sales in the first four months up 18 per cent to 191,697 units — enough to outpace Audi, whose China sales are down nearly a fifth in the same period to 154,873 units.
Its Shenyang plant generates vast amounts of data every day. Just tightening 140,000 screws creates an enormous amount of data, which is analysed for optimal torque and angle.
The bodyshop is 95 per cent automated, and a high-tech pressing shop can make the BMW 5 Series saloons, or sedans, at the plant 130kg lighter than previous versions of the same model.
“This is the most modern sustainable, efficient car plant within BMW,” says Nicolas Peter, BMW’s chief financial officer. “Today Shenyang sets a new standard. Maybe in two years' time it will be somewhere else, but for the time being this is it.”
Analysts say that the new plant is just the start of an ambitious plan to double production in China from 2016 levels to 600,000 vehicles by 2020.
“It's by far BMW's best market in terms of growth outlook — nowhere else comes even remotely close,” says Robin Zhu of Bernstein in Hong Kong.
However, BMW officials say they are cautious about over-reliance on China.
For a start, although the Chinese car industry recorded its highest growth rate for three years in 2016, the market is projected to cool.
McKinsey says it expanded at a compound annual growth rate of 12 per cent from 2010 to 2015. It projects this will slow to 5-10 per cent from 2016 to 2020.
The Shenyang project also faced a number of challenges along the way.
In 2013, it was investigated by the Chinese ministry of the environment over the impact of raising production at the plant in Shenyang. Keeping China’s goodwill takes considerable effort, company officials say privately.
“Everything BMW does nowadays need a full consideration of the Chinese consumer and regulator,” says Arndt Ellinghorst, head of auto research for Evercore ISI in London.
But the temptation is clearly to take advantage of the company’s brand recognition in the fastest-growing large market in the world.
“Not many companies have the brand equity to create a major pull among the biggest emerging consumer,” says Mr Ellinghorst. “Or put it this way, BMW could never afford to pay high salaries in Munich if it wasn’t for the Chinese consumer.”
High-tech manufacturers such as BMW are also considered an inspiration to China’s own efforts to make its manufacturing sector more globally competitive — a policy known as Made in China 2025, to which BMW has been at pains to link the new factory at every available opportunity.
“We are really proud to be able to contribute to Made in China 2025,” Mr Peter says. Beijing’s initiative is based on Germany’s own high-tech manufacturing push, which is exemplified by BMW’s facilities.
BMW has also made efforts to woo the local government. Since 2003 the company has been working in the city of Shenyang, in the economically blighted province of Liaoning.
Formerly the steel and coal capital of China, Liaoning has been hard hit by the worldwide glut in metals, and 13m tons of steel capacity closed last year.
Retooling into high-tech industry is an eagerly sought-after goal — BMW Brilliance Automotive, BMW’s Chinese joint venture in Shenyang, employs 16,000 people and is the province’s largest taxpayer.
As wages in China rise, it may no longer rely on cheap labour as the source of its global competitiveness, and factories are under pressure to become more high tech.
Jiang Youwei, Shenyang’s mayor, says BMW’s facilities in the city are the key to building Shenyang into an “innovation city” by 2030 and “an engine in the revitalisation of the north-east China region”.
However, some other European manufacturers have been cautious about Made in China 2025, saying it puts pressure on foreign companies to localise production — thereby putting sensitive technology at risk of being stolen.
It also blatantly aims to create Chinese national champions in industries directly competing with foreign groups, including cars.
But despite the influence of the authorities on investment policy and the potential challenge from Chinese groups, BMW is in a strong position to compete with its state of the art technology that should help spark further sales growth.
As Mr Peter says, BMW is not afraid of taking on Chinese rivals: “You know, we actually welcome competition.”